E.U. & Russia, a non-renewable Partnership?


European reliance on fossil fuels and the collective dependence on the small number of Producers from whom they can be obtained has been made poignantly clear in these past few weeks. While Russia’s ongoing invasion of Ukraine has prompted a series of unprecedented economic sanctions from the international community, it has also served to draw attention to Western, mainly European, dependence on Russian energy.





Figure 1: The EU and Russia have long remained co-dependent energy trading partners, is this about to change?



Europe’s Russian Energy Dependence


In the form of Oil, Gas, and Coal, EU energy imports from Russia totalled €99 billion for the year 2021, representing 62% of total EU imports from Russia over this time period. In 2021 Russia accounted for “around 45% of EU gas imports and close to 40% of its total gas consumption.” (How Europe can cut natural gas imports from Russia significantly within a year, 2022). In 2019, Russian oil represented 27% of the total volume of crude oil imported to the EU (From where do we import energy?, 2020).


While these figures constitute a marked decrease over ten years, as compared to 2011 when energy imports formed 77% of total EU imports from Russia at a total value of €148 billion (Energy represented 62% of EU imports from Russia, 2022), they also underline the extent to which the EU remains indebted to the Russian energy supply.


Whether this principle served as a factor of consideration in Vladimir Putin’s decision to authorise a military invasion of Ukraine is unknown. However, it is implausible that this fact escaped his and other high-ranking Russian officials’ attention.


What now?


The EU has failed to offer any concrete information on when the Bloc’s collective dependence on Russian energy imports is likely to be severed. The European Commission Ursula Von Der Leyen has cited 2027 as a prospective target date. Suggesting, via Twitter, that a formal proposal for plans to do so will be presented in May of this year (Von Der Leyen, 2022).


What the EU has said on Renewables


The EU has previously stated its ambition to achieve carbon-neutral status by 2050. The spread of the Covid-19 virus and the accompanying societal and industrial behavioural changes have recently helped reduce overall carbon emissions within the Bloc.

Some of these changes – such as reduced transportation usage due to the dawn of remote working may be sustainable. Alongside the now added incentive of reducing dependence on Russian energy and the potential for a rapid rise in the price of fossil fuels.


EU Carbon Tax


The EU has already cited January 2026 as the proposed target date for implementing a member-wide tax on carbon emissions. In a potential paradigm-shifting move, they have also mentioned plans for this tax to apply to importers and domestic industry. A measure they have termed a “Carbon Border Adjustment Mechanism” (Carbon Border Adjustment Mechanism, 2021). This would grant the tax an effective global reach and the potential for a considerable knock-on effect on commodity prices throughout the worldwide supply chain.


To give an idea of just how directly impactful the EU’s carbon tax could be. An estimated surcharge of €75 per metric tonne of CO2 emissions has the potential to increase the cost of high-carbon commodities such as steel, cement, aluminium, chemicals, and electricity from (to date) high carbon output economies such as China, Russia, and India by as much as 15-30% overnight (Figures et al., 2021).


Figure 2: A profile of the current levels of consumption from renewable energy sources amongst EU Member Bloc countries



Current Renewable Energy Production Levels in the EU


As of 2020, renewable energy sources accounted for 22.1.% of gross final energy consumption in the EU member zone. Compared with a total of 9.6% in 2004 marks a growth level of 12.5% over these 16 years (Renewable energy statistics, 2022). Not bad, but we might all hope for better going forward.


Which renewable energy sources are currently being employed?


The renewable energy sources currently actively employed within the EU include “wind power, solar power (thermal, photovoltaic and concentrated), hydropower, tidal power, geothermal energy, ambient heat captured by heat pumps, biofuels and the renewable part of the waste.” (Renewable energy statistics, 2022).


Wind and hydropower are currently the most dominant sources of electricity generated from renewable sources, accounting for 36% and 33% respectively in 2020. Solar Power represents the fastest growing sector, rising to 14% for the same period, up from a solitary 1% back in 2008. Solid biofuels and what has been termed “other renewable sources” make up the remaining renewable energy ticket at 8% and 8%, respectively (Renewable energy statistics, 2022).


Figure 3: Wind Power currently accounts for the largest share of renewable energy production within the E.U. at 36 percent



Increased EU Investment in Renewables


Commitment to investment in renewable energy resources within the EU has wavered somewhat from its 2011 peak of €131.7 billion. In comparison, investment in renewables for 2019 totalled $54.8 billion (Norrestad, 2021). There are, however, signs of newly realized commitment in this sphere.


A budget of €500 million was guaranteed by the European Bank for Reconstruction and Development (EBRD) in 2019 with a European Commission guarantee that “100% of the financing will be allocated to renewable energy investments.” (Boosting Investment in Renewable Energy, 2022). The European Investment Bank – the self-professed “lending arm of the European Union”, has made similarly promising noises. Claiming that it “wants to deliver more than 50% of its financing for climate action and environmental sustainability” by 2025 (EU energy investments: Will 2021 be decisive?, 2021).


A Wider Conflict


Faltering EU-Chinese relations could be a significant stumbling block in any plans to fast-track a transition to more excellent renewable energy production. Tensions have been rising between both global economic superpowers for some time now. In 2019, The EU branded China “an economic competitor in pursuit of technological leadership and a systemic rival promoting alternative governance models” (Von Der Burchard, 2019).


China's plans for its enormous "One Belt One Road" infrastructural project are a particular bone of contention. Given their stated qualms about the existing Chinese structure of governance. Thus far, China's refusal to outright condemn Russia's activities in Ukraine is unlikely to improve relations.


The EU remains China’s single largest trading partner, accounting for 22.4% of total EU imports and 10.5% of the Bloc’s total exports in 2020. That trade relations between both powers remain intact is, despite broader political considerations, excellent news from a renewable energies standpoint.




Figure 4: Solar Power currently represents the fastest growing renewable energy source within the E.U.



A Renewable Supply Chain


A preliminary analysis of the current global supply chain for renewable energies leads to one very obvious conclusion. Europe, and everyone else, need China.


China is simultaneously the world’s largest producer of raw materials for solar cell production and completed solar cells. At the same time, its dominance is less pronounced in the production of Wind Turbines. Chinese companies still make up 5 of the top 10 producers (Kügerl, M.T., and Tost, D.M. 2021).


Throughout the nightmare logistical challenges brought about by the Covid-19 Pandemic, China’s Supply Chain has shown itself to be the world’s most resilient and adaptive. (Suzuki, 2021). While over the past now 30 years plus, it has demonstrated unparalleled ability in the rapid up-scaling of industrial manufacturing operations.


Supposing the EU is serious about increasing its renewable energy output fast. Then China will be a vital trade ally.


Figure 5: An immediate severance of Russian energy ties would mean a world without heating for vast swathes of the EU member countries



The Downsides of a Break from Russian Energy


The immediate net impact of reducing reliance on Russian oil and gas will be, predictably, soaring energy prices. In simple economic terms, a reduction in supply while demand holds constant leads to an increase in price. The degree to which is contingent only upon the extent to which the supply level is reduced.


In blunt terms then, if Russian oil and gas imports to the EU were shut off tomorrow, the effects would be immediate and devastating.


A Time for (considered) Change


An accelerated transition to renewable energy sources through increased member-wide subsidisation and investment will pay long-term dividends, but do people have the stomach for it in the here and now? A massive rise in the costs of essential commodities such as the oil and gas required to heat one’s home or drive the kids to school is the last thing that ordinary everyday EU citizens are looking for.


Couple this with the current record levels of inflation within the EU Bloc and beyond. There is likely to be a little appetite amongst the general EU populace for any further sudden and extreme rises in the cost of living.


Conclusion


The as-yet prospective notion of severing energy ties with the Russian state offers a massive opportunity for a fresh wave of renewable energy investment and growth within the EU Member Bloc. The extent to which this optimism is warranted should become more apparent by May 31st, 2022. The proposed time by which the EU has stated a new plan of action for reduced dependence on Russian energy imports can be expected. Concerns over global carbon emissions remain highly valid and urgent. However, the EU would do well to read the room before pressing ahead with any immediate plans to jumpstart reduced reliance on fossil fuel-oriented energy production. The change will come, but not as quickly as many would like.






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James Duggan

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